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When developer Ralph Rieder declared personal bankruptcy on Nov. 20 last year, many saw him as just another victim of the recession. His story was much like that of other developers--Robert Tuschak, Michael Kaplan--who were caught in a similar bind. During the 1980s, while real estate boomed, Rieder announced project after ambitious project from his headquarters in Highland Park. When boom turned to bust, Rieder's dreams evaporated and he headed for the bankruptcy court in New York City. Creditors, whom he owed close to $100 million, raged and swore, but many others sympathized. In an industry where even giants like Canada's Olympia & York were tottering, Rieder's plight seemed to be one more sign that the world of real estate had changed.
Now, many have begun to wonder if that was the whole story. Question marks are popping up over Rieder's activities as a result of a quiet investigation that the Federal Bureau of Investigation has launched into Rieder, his partners and companies that Rieder controlled. The probe is wide-ranging, say those who have been approached by federal agents, but its focus is on Hampton Club, a 650-unit condominium project in one of New Brunswick's poorest neighborhoods, that was once Rieder's showpiece. To make matters worse for Rieder, his efforts to use bankruptcy laws to rescue his business have failed. In August, he changed his bankruptcy petition from Chapter 11, which would have involved reorganizing his operations, to Chapter 7, a prelude to liquidating his business. Says Lawrence C. Gottlieb, Rieder's New York lawyer: "Rieder was unable to resolve the issue of his financing, and so changed from Chapter 11 to a Chapter 7 bankruptcy."
While bankruptcy proceedings plod on, it is the FBI investigation that has electrified the rumor mills, and set them humming about whether Rieder was involved in anything illegal. The investigation itself does not prove guilt. After the agency completes its work, it might well conclude that Rieder has done nothing wrong, and put its files away. But the fact that the FBI is questioning many of Rieder's associates--"They are talking to everyone," says one source--and looking into his deals, is stirring up lots of speculation in real estate circles. Some wonder if Rieder used money borrowed for Hampton Club...